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Operator:
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Good
day, and welcome to the IMSI Fourth Quarter and Year End Earnings
Results
Conference Call. This call is being recorded. At this time, I would
like
to turn the call over to Chief Financial Officer, Mr. Robert O'Callahan.
Please go ahead, sir.
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Robert
O'Callahan:
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Thank
you, and good afternoon. This is Robert O'Callahan, the IMSI Chief
Financial Officer, and I'm going to introduce the call and thank
everyone
for joining us today to discuss the year-end at June 30. With me
today is
Martin Wade, our CEO, and Gordon Landies, our President. We will
begin the
call by providing an overview of the quarter, and then we'll open
up the
line for any questions you may have.
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Before
we begin, let me remind you that various remarks we may make during
this
presentation are forward-looking statements as defined under the
Securities laws, and these remarks involve risks and uncertainties.
Statements we make in this presentation concerning trends or outlook
for
financial results, markets for our products and statements that
include
the words anticipate, believe, plan, may, will, estimate, project,
expect,
goal, potential, profitability and other similar future expressions
constitute forward-looking statements. Actual results could differ
materially from these forward-looking statements due to many factors,
including the risk factors set out in our 10-K Report and other
public
reports. We do not assume an obligation to update any forward-looking
statements we may make today.
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Now
I will turn the call over to Martin Wade, who will lead off with
the
business overview. Martin?
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Martin
Wade:
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Thank
you, Bob. I'd like to summarize our financial performance during
the year
and discuss our focus for 2006, a transition to primarily an Internet
company.
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First,
I'd like to update our investors on the progress of the merger
with Access
Media. The merger will create an Internet media business for the
Company.
Access Media currently is in a market testing stage and is actively
testing different offers in different markets to determine how
best to
roll out its subscription business for accessing media through
personalized media searches. Access Media plans to launch a fully
active
version of its media subscription business by the end of this calendar
year. We continue to work to fulfill the definitive agreement signed
in
early August with Access Media Networks. We are preparing the proxy
and
anticipate this will be completed within the coming weeks. However,
I
cannot indicate a definite date for release.
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I
would like to point out one significant factor that Access Media
has not
required any cash infusion under our joint operating agreement
as of this
date.
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Putting our business in context, in July we closed a deal to sell our subsidiary, Allume Systems, for approximately $12.75 million, with $11 million in cash and almost 400,000 shares of common stock of Smith Micro Software, then valued at $1.75 million. This sale was part of our announced strategy to focus on our businesses that distribute content over the Internet. Given this opportunity, management determined that we have higher and greater opportunities to invest in our existing businesses and offerings, using the asset to create a higher growth and profit picture. |
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We
also invested in our House Plans business in July with the acquisition
of
Weinmaster Homes Ltd., which closed on July 1, 2005. The purchase
of
Weinmaster was for $4 million, with $3 million of cash at closing.
Weinmaster has been a solid addition to our House Plans business.
House
Plans showed revenues of $4.3 million for the year, and its growth
of 266
percent was both organic and due to three quarters of the acquired
Abbisoft. We believe this acquisition has gone well. The software
products
(now absent Allume) showed fiscal year revenues of $9.5 million,
up 8
percent over last year.
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We continue towards these goals: One, focus on the highest gross parts of our business as part of our goal to increase the mix of online business as a percent of sales. Two, implement cost reductions related to the disposition of Allume and our focus on online opportunities. Three, use our assets to engage in transactions that increase our presence in House Plans and other content that uses the Internet as a primary distribution channel. |
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As of last week, we had a total of approximately $12.5 million in cash, cash held in escrow and investments from the sale of Allume. Our cash balances have remained in the mid-nine million dollar range throughout September as a result of significantly lower operating expense and positive cash flow from house plans. |
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I
would like now to turn to an update on the progress of our business
initiatives.
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One,
we will increase our online distribution as a way of increasing
gross
margin in profit. With the growth of House Plans revenues and
our future
plans, we remain focused on increasing this key source of revenue
and
profitability. Our goal for fiscal 2006 is to generate 70 percent
of our
revenue via online sales by the end of the year. Our investments
in
technology, people and assets will allow us to continue to increase
online
sales into 2006. Two, we are focused on eliminating expense in
slower
growing businesses and supporting the most profitable segment
of our
business. We will continue to invest in House Plans and the Internet
as
part of our overall strategy of generating operating earnings
in fiscal
2006. Three, we will continue to invest in content, services
and products
as a path to increased operating margins. We're also looking
to acquire
properties and assets that will fuel the revenue growth in our
House Plans
business. Gross margins in this business grew over the year to
58 percent.
We expect to improve gross margins in this business to target
a 65-percent
gross margin in 2006.
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That
has been our ongoing strategy. We will continue to evaluate opportunities
and expect to be active in the acquisition of products, domain
names
content and complimentary businesses. Based on these initiatives,
we
expect to achieve our goal of substantial profitability in fiscal
2006.
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Now
I'd like to turn over the presentation to Bob for a more detailed
discussion of our financial performance. Bob?
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Robert
O'Callahan:
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Thank
you, Martin.
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Our
statement of operations for this year has $13.9 million in sales,
post
Allume, with $9 million of gross margin. Just to put this in
context, on a
pro forma basis, if we would have retained Allume, which is a
discontinued
operation, our revenues would have been $23.3 million in revenues
compared
to $12 million last year. The 39-percent year-over-year growth
that we
report was divided between software lines at 8 percent, while
in House
Plans the growth was in triple digits, 266 percent. While we
do not track
the organic growth absent the acquisition of Abbisoft, we believe
it is in
the 150 to 160-percent range.
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Gross
margins for software improved 2.6 percentage points, and margins
for House
Plans improved 7.6 percentage points. But with the House Plans
gross
margin lower than software, the growth in the House Plans business
kept
the mix and the overall margin improvements at 1.3 percentage
points. Our
$8.9 million in gross profit was exceeded by our $13 million
in operating
expenses for an operating loss of $4 million. The majority
of our $6.4
million in sales and marketing expense is within the software
business,
where we maintain direct and indirect distribution channels
requiring
marketing sales and promotional expenses and 18 of our existing
staff. The
House Plans marketing is historically less costly, but we do
have an
active marketing and customer acquisition program there
also.
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The
$4.0 million dollars of G&A over the year involves management, shared
services such as finance, the normal administrative costs of
running a
business and the special cost of public firm compliance. Our
$1.7 million
expense shown in R&D involves software development work. I should note
that overhead expense in 2005 involves a reclassification of
previously
Allume-assigned overhead of $1.1 million. This was assigned
back on the
income statement to the continuing businesses. This is one
of the fiscal
year 2005 income statement effects of the July Allume transaction
that
increased the IMSI allocated operating loss due to the discontinued
operation.
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I
should note while talking about the Allume transaction that
this was the
sale of an entire business unit, including staff and the related
expenses.
You will note in our 10-KSB filing that 33 employees departed
with that
sale. Our base operating expenses are significantly lowered
as a result of
the departure of this business unit.
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The
ArtToday earnout payment classified as gain from sale (involving
Jupitermedia) was the primary factor cutting our operating
loss to a
bottom line loss of $1.8 million. Our EBITDA for fiscal year
2005 was a
negative $328,000.
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On the balance sheet, we reported June 30 assets of $26 million, with $5 million of that in cash. We show a $2 million additional receivable from Jupitermedia on the books as of that date, and this payment was received in full on August 15. Our single largest June 30 asset is the $12 million relating to the sale of Allume on July 1, which was not cash or stock as of June 30. From acquisitions in both sides of the business, our balance sheet shows $4.6 million in intangible assets, including goodwill. Our liabilities on the balance sheet include $2.7 million in Allume-related short-term debt, which was eliminated during the current quarter. |
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I
would now like to turn the call over to Gordon Landies, our
President.
Gordon?
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Gordon
Landies:
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Thank
you, Bob. I'd like to start by reviewing the sales progress
in our two
core businesses for fiscal 2005 and then comment on the progress
that
we're making in these businesses.
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As
mentioned, sales for the fiscal year were 39 percent higher
than 2004 from
the existing businesses when you exclude the discontinued operations.
The
software segment of our business grew 8 percent to $9.5 million.
This
growth was due to increased distribution of our core TurboCAD
and
DesignCAD products and mailings from increased sales - international
sales
in Europe. Actually, the sales from our CAD products grew significantly
greater than that, and that 8-percent sales growth needs to
be reflected
or adjusted for the decrease in other business utilities and
products. The
growth in CAD and Precision Design products were significantly
higher than
8 percent when offset by the decline of the other business
solution
products.
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International
software sales grew 33 percent from $1.8 million in fiscal
2004 to $2.3
million in fiscal 2005. We expect international revenue to
continue to
grow in 2006 due to expanded distribution in Germany, an additional
sales
growth in the U.K., and primarily sales growth that we're experiencing
in
all of Europe. Domestic software sales grew 2 percent, from
$7.1 million
to just slightly over $7.2 million. We expect modest growth
in software
sales from increased sales in the direct marketing channel
and from
focused introduction of new products, such as our new IMSI
PDF to Word
product, which we launched this week. We plan to leverage our
existing
legacy sales channels to increase the overall profitability
of this
business.
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Turning
to the House Plans division of our company - house plan sales
grew 266
percent over the prior year, from $1.2 million to $4.2 million.
Based on
the sales at houseplans.com, globalhouseplans.com, homeplanfinder.com
and
new revenue streams, we expect sales in the existing House
Plans business
to grow significantly before acquisitions in 2006. We continue
to receive
a high percentage of our traffic from nonpaid searches from
our core
domain names and due to the high ranking of our sites. As of
this week,
three of our House Plans sites are ranked number two, three
and four on
Google under the - under the search word "house plans", and
houseplans.com
has climbed to the number one ranking on MSN for the first
time
ever.
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In
addition, we have reached several key milestones during the
last 90 days,
including an increase in our content library to over 21,000
plans, the
largest collection of online plans in the world, and increased
traffic
targets, improved sales prices per transaction and the launch
of our
advertising across most of our key revenue-generating web
sites in August
with Google search words and direct at placement through
selected and key
advertising partners.
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In
conclusion, we have made progress in each of the core businesses
in 2005.
We continue to review our plans to grow the revenue significantly
while
increasing our profit margins and the contribution of each
business.
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And
now I'd like to turn it back over to you, Martin.
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Martin
Wade:
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Thanks,
Gordon. To summarize, we are pleased with the continued progress
we've
made with the Company during fiscal year 2005, and obviously
with the sale
of Allume. With respect to our plans in 2006, I would like
to cover some
of the goals that we have set for ourselves.
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One,
we will continue to focus on and invest in the highest growth
parts of our
business, drive to increase our online businesses to be 70
percent of
sales. We will focus on getting more online traffic through
partnerships
and acquire businesses and web sites that can be added to
our existing
businesses with significant synergies. A key part of achieving
our shift
to online business will be the completion of the merger with
Access Media.
As discussed earlier, we are in the process of completing
the proxy
segment, which will be mailed to shareholders in the fall.
We will give an
update on the Access Media business once the proxy statement
is filed and
at the next Earnings Release, which we anticipate to be in
mid-November.
Two, we will continue to deliver top-line revenue growth
while we continue
to reduce expenses, so as to generate bottom-line profits
and positive
cash flow. Three, our balance sheet will strengthen as we
converted Allume
to ready cash. So we have the assets to invest in expanding
our businesses
as we see the opportunities. Four, finally, as sales momentum
continues
and we continue to gain more operating efficiencies, those
successes will
be reflected in operating income.
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Now
I'd like to open up the call for questions.
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Operator:
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…
We'll take our first question from the Aram Fuchs with Fertile
Mind
Capital. Go ahead, please.
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Aram
Fuchs:
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Yes,
you were going to give us more details on this Access Media
acquisition,
as it's going to represent certainly half of the new company.
You know, we
love to hear things about assets, employees, things like
that. And just a
second question related to in the 10-K you mentioned that
you'll fund up
to $3 million before shareholder approval. I was wondering
IMSI will get
collateral on that $3 million loan?
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Wade:
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Let
me answer the second one first, Aram. Yes, we will, in the
form of a note.
Secondly, going back to your first question. I'd love to
give you that
kind of data, and I will be giving you that data and much,
much more in
the proxy statement. Until I do that, however, I am not allowed
by the
regulations to disclose that information. It has to come
to you and all
the shareholders by way of the proxy statement. That's the
most efficient
and safe way, according to counsel, for us to distribute
that information
to you.
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Aram
Fuchs:
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OK.
Well, I've certainly seen quite a few companies do it in
an 8-K or a press
release.
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Wade:
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Well,
we have done a Press Release, and we think we've given the
information in
the initial Press Release, then of course within an 8-K.
At this point,
we'd like to cover the rest in one final step in the proxy
statement.
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Aram
Fuchs:
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OK,
well, I'll certainly be reading that. Thank you.
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Operator:
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Moving
next to the site of Anthony Marchese with Monarch Capital.
Please go
ahead.
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Anthony
Marchese:
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Yes,
hi. Good afternoon. I just wanted to clarify something, and
perhaps I
heard it wrong. You said net income positive in
2006?
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Wade:
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We
didn't mean to say that if we did.
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Anthony
Marchese:
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OK,
I thought I heard you say you would be - you would be very
profitable in
2006, and I wasn't sure what that meant.
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Wade:
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Yes,
that's what we did say.
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Anthony
Marchese:
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OK, well, I'm not sure what that means, I guess. |
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Wade:
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Yes
- it just means what we said. We're going to be profitable.
I'd rather not
say whether that's operating profits, net profits. We intend
to be
profitable, and we're not giving guidance at this time
because of the
massive change that we'll go through once we have Access
Media close. We
will be back to consider that issue and be back to the
shareholders post
to closing if we feel it's at that time appropriate to
give
guidance.
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Anthony
Marchese:
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OK.
Thank you.
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Operator:
…
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Wade:
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Thank
you. I would like to say thank you for everyone who attended
the call and
for the questions, and we look forward to speaking with
you again at our
next
quarter.
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